Proper inventory management is a key concept for most small businesses. If you do not have accurate inventory totals, you will have a much harder time replenishing stock, preventing spoilage, selling through stagnant merchandise and maintaining proper displays. One of the primary considerations when evaluating your inventory processes is to decide how often you need to physically count your inventory and when a mere cycle count, or electronic count, suffices. There are important considerations in deciding this duration, and there are several possible choices.

Perpetual or Cycle Counting

One common and accurate way to perform inventory is using perpetual inventory software. As inventory is received into stock, sold, returned to the store and then to the manufacturer, it is tracked by the software. Employees perform spot checks on small sections of the business throughout the year without disrupting store hours. This "cycle counting" allows for generally up-to-date inventory figures. For this to be your only inventory method, you should perform frequent spot counts of individual, higher-theft items to verify authenticity. Generally Accepted Accounting Principles and IRS policy allow for cycle counting as a viable option.

Periodic

Other businesses opt for a periodic inventory. This closely relates to cycle counting but attempts to be more systematic. Some businesses perform these periodic complete counts every three or six months to verify the accuracy of their cycle counting rather than merely performing spot checks of commonly lost items. An advantage to this method is that the loss because of theft is tax-deductible. It also could lead to improved accuracy of your cycle-counting system.

Seasonal

Another interval used by some business models is a seasonal inventory. These can be spot inventories or complete counts. The primary rationale behind these inventories involves either changing seasons and trends or product spoilage. In clothing, for example, some businesses perform either a complete or partial inventory near the end of a season to verify they have sold through the seasonal inventory in lieu of the new merchandise being stocked in its place. In businesses selling perishable items, it is necessary to verify you are not selling expired goods that are in violation of health codes or that could harm the customer. These are commonly spot checks to support the cycle-count inventory totals.

Annual

Performing an annual inventory is common when businesses do not use cycle-counting procedures and software or when they have a small number of items. Many companies also perform yearly inventory to correct cycle counts within the software going into the new calendar year and to use the loss from this count as an often significant tax deduction. Some also tie an operations manager's yearly review and performance bonus to the accuracy of this year-end count.